White House Might Want to Give You a Tax Cut

A Wall Street Journal story
says the Obama administration is considering tax cuts and other stimulus measures, sending the blogosphere into a flurry of activity. A later
White House statement (see "Update")
suggesting such reports were "premature" has done little to calm the
waters. Early buzz is mostly centering on the possibility of a
payroll tax cut. There are two considerations: politics and economics.
Would the tax cuts the administration mightbe considering make sense in this climate? Here's the debate.

The Cuts Would Have to Be Simple "to make any headway (as a political move)" says Business Insider's Joe Weisenthal, echoing a point made by a source of Reuters blogger James Pethokoukis. Weisenthal thinks
the cuts make "a lot of sense both economically and politically." "The whole
justification for letting the Bush tax cuts laps (for the rich) was
that we had to show credibility on fighting the deficit. But actually
we don't." There's no immediate fiscal crisis, whereas there is an economic one.

Some Criticism From the Left Liberal blogger David Dayen
is skeptical of the tax cuts and wishes the administration would go for "a big infrastructure bill"
instead, if it's looking for stimulus. He understands that there is
pressure to get the politics right so soon before November, but he
thinks this would work:

A big infrastructure
bill--something that would identify and fund projects that have gone
neglected for far too long--sounds appropriate. And either you dare
Republicans to block it and they cave (unlikely), seeding the economy
with a lot of demand, or you dare them and they do block it, at least
providing a political argument to make for the future.

Alternatively, we can try another tax cut.

Payroll Tax Cut Would Actually Work, argues David Leonhardt
in a column prior to the Wall Street Journal story and dedicated to
examining the efficacy of different types of cuts. "The most effective
tax cut for putting people back to work quickly is one that businesses
and households get only if they spend money." A payroll tax cut for
businesses does that well, by "reduc[ing] the cost of employing
people." The dramatic cuts under Reagan, by contrast, didn't wind up
doing much: "simply sending rebate checks to most households seems to
have more punch."

Possible Complications A payroll tax cut is "not a bad idea" as far as stimulus goes, says Reuters's James Pethokoukis,
although it won't fix everything. "Payroll tax cut for $400 billion in
early 2009 would have been better than Obama's $862 billion plan." He
wonders, though, "how ... this [would] square with [the White House's]
new focus on deficit reduction." Then again, he points out, too, that
"a really bad payroll number on Friday could change political dynamic
on this."

Potential Republican Opposition The Economist's Ryan Avent writes that the political obstacles to passing a fiscal boost that is "well-designed and of an appropriate scale" may be too high. "Republicans are surely anxious to see
economic recovery, but would probably prefer it to arrive after they've
returned to the majority--and they have the ability to derail
legislation they don't like."

Is This Speculation Even
Warranted? "It's probably premature to consider what kind of
resistance this would face in Congress," says liberal Washington
Monthly blogger Steve Benen. "Indeed, the WSJ is the only outlet reporting that such a proposal is even a possibility." That said, he wonders if the
Wall Street Journal story might be a leak for someone "to gain leverage" in a possible "debate underway among administration officials."

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